Technical Picture - Oversold

The markets opened on a mildly favorable note in the wake of Friday's afternoon bounce and talk of a gov't plan to takeover C's bad assets. That quickly turned into a head fake with a steady slide into midday resulting in a breach of Friday's lows and the underperforming Dow dropping to its lowest intraday level since Oct 1997. Minor consolidation followed by more afternoon selling and a weak close.

We are extremely oversold and normally we would expect to get a technical bounce soon. However, with all the rumors and speculation, I'm not holding out for much of a bounce until the failing bank crisis gets resolved.

As for the big picture, I see an inverse H&S pattern taking shape on the SPX weekly chart above.

Stocks reporting earnings in pre-market: FWLT, M, TGT, HD.

Opening Range Breakout - Agnico-Eagle Mines Limited (USA) (Public, NYSE:AEM)

Both AEM and NEM are the same type of setup. I'm placing my fib lines from the PDH to the ORL or early pivot low and looking for potential retracement trades (back to Friday's highs). AEM worked perfectly and NEM started out as planned, but couldn't follow through on the second half, so I had to short it on a lower high in the R-zone.

If you're like me, trading from a WL, focusing on certain sectors, you probably look at what's going on with yesterday's winners for follow-up trades. If not, this post won't be of much interest. Trying to find the best Fib. placement for these types of trades that gap within the previous day's range is challenging. I really like how this Fib. strategy worked for me, because both charts were easy to read. For AEM the R-zone acted as support, whereas for NEM, it acted as resistance. In both cases it was clear what action was required to make money.

Capitulation - Bank of America Corporation (Public, NYSE:BAC)

The banks went into free fall amid rumors and speculation regarding the government's bank stability plan. In early afternoon they capitulated on huge volume. BAC carved out a morning star reversal pattern, so it appeared safe to get long.

Capitulation volume spikes foreshadow that a bottom is near. However, if not accompanied by a clear reversal pattern, size it accordingly. In other words, be prepared to average down.

For this particular trade, I placed my fibs from yesterday's close to today's low because I wanted to be conservative in my expectations. I took a partial as price approached the ORH and exit balance on gap fill.

Cup & Handle - Newmont Mining Corporation (Public, NYSE:NEM)

NEM gapped up on the open as did most gold stocks with gold futures closing in on the psychologically significant $1000.00 level. NEM carved out a cup & handle with a NRIB (narrow range inside bar) (NR7) as the trigger bar at the base of the handle. On a measured move basis, the C&H pattern should extend 100%. Place the Fibonacci lines from the low of the cup to the base of the handle.

I exited half at the 1/2 $ level as price approached full extension and exit the balance as price moved into the whole $ level.

The attributes of the pattern as outlined below on the lower timeframe. Volume contraction should accompany price contraction as the handle forms. This leads to expansion.


Related post : Cup & Handle VMW

Also check out Anarco's AEM trade

Support & Resistance

CAT printed a hanging man at resistance.

V tested resistance at $58.00 in early trade. This was a HCPG pick on Friday - failures lead to fast moves in the opposite direction. My alert was set too high today, so I didn't get into V until the inverse C&H was about to break. But you can see from the chart that today's price action almost mirrors Friday's. So basically, I was able to make the same money twice.

1 minute chart below shows that two bear flags formed along the way so there was opportunity to get in after the initial break.


Last night we said that POT had carved out a nice inverse H&S. I was disappointed that it gapped so wide - into the R-zone. Eventually it printed a series of lower highs, setting up for a gap fade and fill.

ABX - the base from yesterday's inverse H&S held as support for most of the session, but it finally gave way for nice short into the close.

Last night I said price has a memory and the CAT, V and ABX trades prove the point. Remember to set alerts at key support/resistance levels.

And what's up with this Trader Transaction Tax? Sounds like some people are getting carried away, blaming Wall Street and the regular Joe day trader for everything that's gone wrong with the U. S. banking system.

Technical Picture - Possible Bear Trap

The doji sticks on the DOW and S&P imply a loss of momentum but we need to close above doji highs to confirm a retracement. The fact that the DOW is testing November lows and that neither S&P and NASDAQ are confirming, leads me to think that we may be in a bear trap. Clearly volume is not overly bearish.

You may have noticed that the afternoon session was rather choppy. That's OPEX (options expiration - 3rd Friday of the month) kicking in. And we may get more chop tomorrow.

Look for orderly setups like the inverse H&S pattern on the POT chart below. Don't get stuck in a choppy trade if you can help it.

Inverse Head & Shoulders - Barrick Gold Corporation (USA) (Public, NYSE:ABX)

RIMM was my opening range breakout trade. Why was I watching RIMM this morning? As you can see from the daily chart above, yesterday RIMM closed near its lows, just below a key support level $45.00. This could lead to a continuation play or a snap back reversal at support.

As depicted on the 1 minute chart below, RIMM gapped up and quickly reversed. I placed my Fibs. from the ORH to the low of yesterday's closing bar. I wanted to short the continuation setup as price took out the closing lows. At first it was choppy, but as price approached the base, it carved out some NRIBs. Use last pivot high as stop (red line segment). It fell like a hot knife through butter and I exit on a hammer like bar between 100-150% extension.

RIMM support at $40.00 should bring in bargain hunters.


ABX extended yesterday's weakness in early trade and reversed. It appeared to be carving out an inverse H&S base. We can assume this as the right shoulder holds support near $37.00 (neckline) as it did on the left shoulder. I took an early entry as price formed a narrow base inside the right shoulder.

I exited half as price broke the accelerated trendline on 1 min. and was forming a long upper shadow on 15 min. I added back when original trendline held as support.

I planned to exit the trade at the same price that I shorted yesterday. Why? Because I believe that price has a memory. Many will dispute this theory, but it works effectively for me and that's all that really counts.